Curbing Medical Costs

It is no secret that the United States has a scandalously large number of uninsured people, now up to 47 million and growing. That number is vivid and evocative, but it has overshadowed a far more serious issue: the steady escalation of health care costs, currently increasing at an annual rate of 7 percent. As a consequence, it is projected that the Medicare program will be bankrupt in nine years and overall health care costs will rise from the present $2.1 trillion to $4 trillion in 10 years.

Those rising costs are an important reason why the number of uninsured people keeps going up. Businesses find it harder and harder to pay for employee health benefits, and only 61 percent of employers even provide them (from a high of close to 70 percent a decade ago). The employers who do provide benefits are cutting them and forcing employees to pay more in the form of co-payments and deductibles. The 15 percent of Americans who are uninsured are surely faced with both health and financial threats. The cost problem, however, now threatens everyone else as well, including those assisted by Medicare and Medicaid.

Yet even if most people are aware of the dangers of cost escalationand many know it from personal experienceit has not gripped the public imagination, the presidential candidates or the media with the force of the problem of the uninsured (even though recent public opinion polls indicate it is catching up). Candidates and others have proposed a number of detailed plans for universal care, but nothing comparable for cost control. There is a reason for that.

The problem of the uninsured is the popular problem and the problem of cost control the unpopular one. The former is popular because it is easy to empathize with millions of people who cannot get decent care. Cost control, by contrast, is unpopular, or, perhaps more precisely put, it is dodged and evaded as if it were a nasty political virus to be avoided. Consider what serious cost control will require: moving from a 7 percent annual cost growth down to 3 percenta rate of inflation for health care costs that is no greater than the annual rise from general inflation. This amounts to a cost reduction of $1.5 trillion over the next 10 years, settling in at $2.5 trillion in a decade. That would represent an enormous and unprecedented drop in annual costs for a health care system that has never, since World War II, seen anything more than a short and temporary decline from time to time. But this will mean that just about everyone will be forced to give up something, obliged to accept a different, more austere kind of health care.

There are at bottom only three ways to deal with the high cost of health care. One of them is to increase revenues for the system. With government programs such as Medicare, this means raising taxes sharply; with private insurance it means raising premiums. Another approach is to cut benefits drastically, giving people less care. Still another way is to force individuals to pay more out of pocket for their care. Not one of these strategies, if openly embraced, could possibly become popular. They would just be different ways of inflicting pain.

Controlling Medical Technology

The feature of cost escalation that ought to catch our eye most is the role of medical technology. Health care economists estimate that 40 percent to 50 percent of annual cost increases can be traced to new technologies or the intensified use of old ones. That means that control of technology is the most important factor in bringing costs down. Technology also happens to be the most beloved feature of American medicine. Patients expect it; doctors are given extensive training to use it; the medical industries make billions of dollars selling it; and the media love to write about it. The economic and social incentives to develop and make it widely available are powerful, and the disincentives so far are weak and almost useless.

Even among economists and others who concede that technology plays a central role in the cost problem, there is considerable ambivalence about how to deal with it. Technological innovation is as fundamental a feature of American medicine as it is of our industrial sector. After all, innovation has given us vaccines, antibiotics, advanced heart disease care, splendid surgical advances and increasingly effective cancer treatments. And many diseases and crippling medical conditions call for still more innovation. No wonder a distinguished economist from the Brookings Institution, Henry Aaron, who has prominently called attention to all the problems of technology, has written nonetheless that any effort to curb the introduction of new technologies beyond what is required for safety and efficacy would be sheer madness.

If there is ambivalence in many quarters about managing technology costs, there is outright resistance to such attempts among many American physicians and medical industry associations. Those groups were heavily responsible in the 1980s and 1990s for killing two federal agencies designed to assess medical technology from a scientific and economic perspective. Medical groups opposed them on the grounds that studies of that kind could interfere with the doctor-patient relationship (only they can decide about treatment evidence), and that since life is priceless, any economic assessment would be immoral. Congress, which has never shown much enthusiasm for the control of technology costs, did the actual killing. Ever since the advent of Medicare in 1965, Congress has not allowed it to take costs into account in determining which technologies and treatments it will cover. The medical device industry has been blamed for that resistance. Meanwhile, the pharmaceutical industry has blocked price controls on drugs for many decades.

While it will be hard enough to get universal health care in this country, it will be even harder to control costs. The opposition to such control is politically more intransigent; and in the case of technology, the opposition is deeply rooted in American culture, whose obsession with health is not matched in any other society. Comparative public opinion surveys in Europe and the United States indicate a much greater belief in technology in this country. An astonishing 40 percent of Americans believe that medical technology can always save their lives; not nearly as many Europeans share that fantasy. The old line that Americans believe death is just one more disease to be cured is no longer a joke.

Cost-Cutting Ideas

Can anything be done about costs? A number of ideas have been floated about how to meet the challenge, most of them not rooted in any experience or evidence. The longtime favorite has been to eliminate waste and inefficiency, which is like trying to keep dust out of a house located on the edge of a desert. Medical information technology is a more recent candidate, along with increased efforts to advance disease prevention efforts, consumer-directed health care and disease management programs.

Those are all attractive ideas, but they share a common and crippling handicap. In our messy and fragmented mixture of public and private health care, there is no effective leverage, government or otherwise, to put in place good but often painful ideas. Government might manage to act on some of them, but only after a long and difficult fight. The private sector has never shown much capacity to do so; and given its market philosophy, it would surely resist government efforts to impose cost control mechanisms upon it.

Universal care is the only tried and effective way to control costs. The European health care systems do so effectively by means of a strong government hand. They use, among other things, price controls, negotiated physician fees, hospital budgets with limits on expenditures and stringent policies on the adoption and diffusion of new technologies. The net result is that they keep annual cost increases within the range of 3 percent to 4 percent, have better health outcomes than we do and achieve both at significantly less cost. With the exception of the United Kingdom and Italydespite what many American conservatives saythere is little rationing and there are no waiting lists for care.

But that is Europe, and this is America. The methods we are inclined to use here to control costs are generally mild and do not promise anything near the reduction in costs needed. The methods the Europeans use, dependent upon government, work well but are culturally and politically unacceptable here. That is the fundamental dilemma in trying to think through the problem.

Consequences of Cost Control

We need a change in culture, not just in the management of health care. Since many of the effective means of controlling costs will be painful for us because of our fascination with technology, the resistance to change will be formidable. Effective control will force patients to give up treatments they may need, doctors to sacrifice to a considerable extent their ancient tradition of treating patients the way they see fit and industry to reduce its drive for profit. Hardly anyone will want to do such things. Liberals will hate it, because though they favor universal health care, they are also children of the Enlightenment, champions of endless scientific progress and technological innovation. Economic conservatives will despise it as government interference with market freedom and consumer choice. Social conservatives will see the necessary rationing as a form of social euthanasia, killing off the burdensome in the name of cold-hearted economics.

Many commentators argue that if health care is not reformed, our system will collapse. I doubt that will happen. Instead, there is likely to be gradual deterioration, tolerable enough for the affluent but bringing to everyone else a gradual loss of quality, with more people uninsured, more expensive insurance, more bankruptcies and economic pain from medical debts and more economic anxiety about getting sick.

The frustrating part of all this is that in principle, cost control is a problem that can be solved. There is indeed waste and inefficiency, enormous and absurd variation in costs of care from one geographical region to the next, a great deal of useless or only marginally useful treatment, great possibilities in disease prevention programs, far too few primary care physicians and geriatricians and far too many specialists. The fact that the European countries can control costs and limit technologies without harming health is a patent rebuke to our way of doing things.

Looking for Solutions

Can we get there from here? To do so, both a huge economic gap and an equally huge cultural gap must be closed. We have become accustomed to living (and dying) with an expensive and disorganized system that serves many ends other than health. It is a system designed for reckless affluence. It builds upon a model of health and medical progress that is open-ended and infinite in its aspirations. Suffering, aging and death are enemies to be conquered, at whatever the cost to other social needs.

With the help of intensive marketing by industry and daily media hype, we have become fearful hypochondriacs, sensitive to every ache and pain and always anxious about that undiagnosed cancer or heart disease just waiting to get us. Our standard for good health constantly rises. Whatever the state of our health, it is never good enough. However high our life expectancy, we remain forever hopeful for medical miracles and endlessly dissatisfied with our health.

The nation needs a good dialogue on health care reform, but one that moves beyond organizational and management schemes. They are important but no more so than some deeper matters. Should death be seen as the greatest evil, which medicine should seek to combat, or would a good quality of life within a finite life span be a better goal?

Do the elderly need better access to intensive care units and more high-tech medicine to extend their lives, or better long-term and home care and improved economic and social support? Does it make any sense that the healthier we get in this country the more we spend on health care, not less? Should we be spending three times more of our gross domestic product on health care than on education (when 40 years ago it was about the same)?

Those are rhetorical questions. But they are the place to begin any serious discussion about the control of costs and technology. That discussion merits at least as much attention as does the plight of the uninsured; it will be harder to maintain and focus, but it is even more necessary.

Daniel Callahan, director of the international program at the Hastings Center in Garrison, N.Y., is the author of Setting Limits: Medical Goals in an Aging Society (1987) and co-author of Medicine and the Market: Equality vs. Choice (

Comments

Ronald Pelley | 2/7/2010 - 11:15pm

Has anybody out there ever heard of an HMO (health maintaince organization). I realize that there were a number of problems with some of the start ups back in the 80's. But as a retired biomedical research scientist who currently receives his health care from an HMO, I can tell you that they function quite adequately.

Yes, considerable attention has been paid to research on Comparative Outcomes. The classic is the Dartmouth Study which compared costs and outcomes in numerous regions of the US. The two prototypical areas were a large HMO in Minnesota and typical "Fee for Service" operations in Texas. After controlling for critical variables (socioeconomic status, ethnicity, family life) McAllen TX spent twice as much as Rochester MN and had significantly inferior outcomes. Most of the above commentaries (except for Barb's) impress me as eminating from sociology and polysci depts. Data always carries the day and it generally comes from depts of Preventative Medicine. Come on, hasn't anybody read a good paper lately, the literature is chocked full of papers that indicate that Preventative Medicine and HMO hold the only promise for cost containment. If you don't believe me start calculating the costs for jump grafts in 20 years when the current generation of obese 30 year old hypertensives with Type II Diabetes reaches their 50's.

An emeritus adjunct professor of Immunology and Microbiology at a SE Michigan Medical School.

While agreeing that universal healthcare would demand a culture change in the United States, I take issue with the characterization of Americans as having a health obsession. If that was the case, how does one explain our overwhelming obesity, promiscuity, and substance abuse? As a registered nurse working in acute care hospitals for three decades, my observation has been that Americans are obsessed with the avoidance of the inconvenience of disease, its symptoms, and its impact on their lifestyle. In all the discussions on universal healthcare, no mention is ever made regarding the consumer’s responsibility for stewardship of healthcare resources. Americans have a sense that the healthcare purse is inexhaustible and their ‘right’ to healthcare is limitless. In my role as a discharge planner, patients will routinely request to have their hospital stay extended for non-medical reasons, e.g. their family is on vacation or their kitchen is being remodeled. Morbidly obese patients demand Medicaid coverage for a thousand dollar arthritis medication (one while eating spoonfuls of peanut butter in front of me). Medicare and Medicaid costs are poorly monitored. The government leaves daily cost management up to the healthcare providers, which is often a case of the fox guarding the henhouse. The American culture and psyche will need to undergo a metamorphosis before universal care can be solvent.

Not so much a comment as an appeal for more on the subject dealt with by this fascinating, but too brief article. Somewhere there must be a book (I certainly haven't found it yet) that surveys questions of health care from a comparative perspective. For instance: what are the strengths of the US system and what are its shortcomings? (That's the easy one). What do the British, the French, the Germans, the Canadians, the Italians, the Swiss, etc., do better than us? (And how do they do it apparently far more economically than us?) What do they do worse than us? What can we learn from them? And what, if anything, might we teach them? Perhaps if the book doesn't exist someone is working on one! In the meantime, I'm grateful for suggestions.

Re: Curbing Medical Costs. America. March 10, 2008 Dear editor: After getting past the erroneous photo (the radial pulse isn’t over there), Callahan begins the necessary discussion about health care. Unlike the frog in the pot of water that didn’t detect the rising temperature until too late to jump, the American people are becoming aware of the rising cots and lowering availability of health care. There are at least three aspects of the problem that need to be addressed. One: Unlike other economic situations, the consumer of health care is disconnected from the costs of health care. Insurance, when available, is most often provided by the employer or by a government agency. There is no free market price sensitivity to act as a governor of health care inflation. Two: Since 1997 under the guise of educating consumers, pharmaceutical companies have led us to believe that we need to go to our health care provider and demand the latest drug or device being promoted.(Direct to Consumer Advertising (DCA) Commercials may give lip service to life style modifications of diet and exercise, but with no forthcoming revenues from this, that advice is definitely in the fine print. There is no requirement that new products demonstrate cost effective over existing products. Three: The disengagement of citizens from the political process has allowed big money interests, e.g. pharmaceutical manufacturers, device makers and insurance companies to have disproportionate influence in Congress. I agree with Callahan that we will need a change in our culture. This requires that we develop the political will to fix the system. We get the government that we demand. We can get engaged and influence the outcome or we can cynically grouse and allow the moneyed interests to dictate the future. Frog or Person that is the question. Larry Donohue M.D.

We already have rationing and it is determined by who has the money. Lets see, if you look at the parable of the good Samaritan, does help come to the sufferer if he is rich and deserving? Or does it come because he is a human being and by his very humanity deserving. In our health care system, only those rich enough are deemed deserving of health care. In every other industrialized country health care is considered a right, not just a privilege for those who have enough money. And some of us call us a "Christian Nation". Countries that have a universal health care system address the rationing issue in a basically ethical way. They don't let market forces that at present rule our health care systems decide who deserves to suffer and die and who doesn't. Corporate profiteers have perpetuated and will fiercely fight to uphold various myths to sustain their continuing obscene profits. If we can fund a fiasco of an Iraq occupation, we can fund decent health care. Its all about our values and priorities, our ability to question the lies, and our courage to speak out.

I agree with everything in Daniel Calahan's article. I did not notice any comments on duplication of services. For instance, how many state of the art heart centers does an area like Toledo need when empty beds prevail and money is wasted on competetive advertising instead of patient care? No painless solution - just another rhetorical question.

Dan Callahan makes eminent sense (March 10) and issues a dire warning. Just as with our attitudes toward environmental protection, so our accustomed views of health care are going to have to change, because the way things are simply are not sustainable in these areas, no matter what we may wish. But there's a huge problem here. Can you imagine a politician anytime soon seeking election or re-election while running on such an austere and counter-cultural platform?